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PAX has grown to become one of the preferred stablecoins in the crypto ecosystem, widely accepted in various exchanges, wallets, and other platforms, mainly due to its regulated nature and trustworthiness. Dai (DAI) is a stablecoin cryptocurrency that is pegged to the US Dollar, ensuring that its value remains relatively stable in comparison to the often volatile nature of other cryptocurrencies. It’s a product of the MakerDAO system, which is part of the Ethereum blockchain ecosystem. By providing both investors and traders with an easy on/off-ramp, there is no longer a need to exchange between fiat currency and digital assets to execute trades or reorganise portfolios. It is the second-largest stablecoin and the 10th-largest cryptocurrency by market capitalization, worth just under $35 billion.

The complexity of these financial instruments could lead to a situation similar to the 2008 financial crisis. Stablecoins have been touted as the stable anchors in the volatile sea of cryptocurrencies. But recent events have raised questions about their stability and the risks they pose to the financial system. It is unsurprising that Gensler has dealt out further criticism of the crypto markets having been very public about his opinions on cryptocurrency networks saying most consumers are not educated enough to judge the risks themselves.

But readers are not even presented charts or stats that illustrate these points. But of all the things to drill into with the SBF, why burn any oil on this? Central banks and universities researchers regularly publish surveys on the motivations of coin ownership. The Solana blockchain suffered numerous outages since its launch in 2020, with fourteen in 2022 alone.

It seemed to me like they just didn’t want to admit they’d been wrong. "To me it’s not about the money at all, it’s about the future," an emergency room doctor in Lafayette, Louisiana, told me after he lost $800,000. DeFi used these smart contracts to create decentralized, web site anonymous versions of exchanges like Sam Bankman-Fried’s FTX.

Some claimed to have held back for fear of angering a powerful industry player. Bitcoin maximalists blamed Sam for all their problems, rightfully pointing out SBF’s cozy relationship with mainstream media publications, regulators, and lawmakers (some of which he gave large sums of money). But then, as maxis are wont to do, they wandered off into wackadoodle land, painting conspiracy theories that Sam was working with Biden to send money to Ukraine via crypto. For many coiners, it was taken as good news, a way of legitimizing the first cryptocurrency by enshrining it under the existing regulatory regime. Also, like most of Justin Sun’s projects, USDD did not take off. For example, a year ago its "marketcap" was about 10% higher than it is today.74 Speaking of which, the paragraphs on Sun were pretty solid, a second edition could mention the SEC lawsuit announced in March 2023.

While the US Federal Reserve is still studying the issue, it faces pressure from China and other countries that have issued their own digital currencies. China’s CDBC, called the digital yuan, is currently rolling out as Xi Jinping’s government cracks down on cryptocurrency in the country. The Chinese government clarified its ban on crypto last week, specifying that it does not permit transactions of bitcoin, ether, or even the stablecoin tether. At the market level, real-time payments within a currency bloc, that settle in central bank money have been implemented using Real-Time Gross Settlement Systems in over 90 countries to date. Some of those payments systems such as the Eurosystem’s TARGET2 have been extended to support securities settlement (T2S) and smaller scale instant payments (TIPS). For the cross-border market CLS connects together the RTGS of 17 currencies to allow PVP settlement against central bank reserves.

Although they do not provide specific examples here, anecdotally it is likely that some centralized exchanges attempt to use regulatory arbitrage to avoid specific jurisdictions. But the next edition should provide a couple here (they do a little later). Worse, these unregistered, unlicensed securities were primarily traded on crypto exchanges, which often served multiple market functions and, therefore, had massive conflicts of interest.

The primary value-add of stablecoins comes from their relative lack of volatility. In the nascent cryptocurrency market, recent swings have sent the value of the major cryptocurrencies, such as Bitcoin and Ethereum, through exponential booms and busts. In theory, stablecoins offer a safe haven for users who want to avoid this risk while still maintaining assets and transacting in the digital economy. Indeed, their relative stability makes them particularly attractive candidates to integrate the traditional financial system with blockchain-based cryptocurrencies. In contrast to the traditional financial system, stablecoins allow for payments that settle almost instantaneously and often without an intermediary. They can be sent to "smart contracts," software contracts that can autonomously perform functions that were traditionally relegated to banks, such as escrow reserves, collateralized lending, web site derivatives, and asset management.

Getting paid in cryptocurrency can be intimidating - especially if you are new to the crypto space. Flywheel content is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This is an interesting point Deathereum makes, which I think might get lost in this whole discussion. We’re so used to viewing money as a One-Type-Of-Money-Illusion that all dollars are the same. They aren’t and it’s a gross misconduct of our institutions and businesses to promote them this way.

That probably wouldn’t stop the whales and day traders from extracting their profits; they make money on volatility as much as price appreciation. For some, market disaster brings potential opportunity, and Tether may just become another useful distressed asset. The value of stablecoins outstanding grew exponentially from ~$3bn at the start of 2019 to over $182bn at its peak in March of 2022 before falling by ~$40bn to ~$142bn today, with close to $20bn of that decline due to the implosion of UST. Excluding UST, the value of stablecoins outstanding is down only ~12% from its peak, comparing well with the ~70% decline in the overall market cap of all crypto assets.